Your browser is currently blocking notification.
Please follow this instruction to subscribe:
X
Notifications are already enabled.
X

Move Over Amazon, Flipkart; There’s A New (Ecommerce) Model In Town

Move Over Amazon, Flipkart; There’s A New (Ecommerce) Model In Town

As the ecommerce majors squabble between each other and the government, social commerce is quietly spreading into India’s teeming mid-tier cities and towns

Those who think that ecommerce in India is now a high-stake two-horse race between Amazon and Flipkart may have missed a new player coming up fast from the shadows. A recent clutch of investments from some of India’s wiliest venture capital firms such as Sequoia, Accel, Matrix and Kalaari have shown that social commerce, a concept that meshes social media and ecommerce, is already changing the way people shop.

If you live in one of India’s five metros, you may not even have heard of names like GlowRoad, Meesho, Shop101, BulBul, DealShare and Mall91. But these are names that are bywords for online shopping in India’s 50-plus mid-tier cities and almost 5000 towns. Not only have they become popular channels for shopping the latest clothes, electronics, accessories and household products, but also as an opportunity to earn money.

Social commerce focuses solely on middle-income and lower-income segments from non-metropolitan cities in India to sell non-branded apparel, groceries and local handicrafts. The social part of these platforms comes from the fact that users can get better deals or earn money by rounding up their friends and family to make purchases through them. Driven by Facebook posts and WhatsApp messages, social commerce companies rely on the oldest form of advertising: word of mouth. Simply put, a person is more likely to buy something if it is recommended by somebody they know and trust.

While Western models of social commerce are slightly different and mostly involve integrating ecommerce features into an existing social network — ‘Buy’ button to Twitter, Facebook or Pinterest— in the Indian context, social commerce is not just a purchase or a transaction, but an extension of the actual social networks that govern online interaction and activities.

“The idea for us to create the biggest ecommerce story in the country” – Sourjyendu Medda, cofounder DealShare

In the summer of 2018, Sourjyendu Medda, a marketing executive in his forties met up with an old classmate Vineet Rao. Both had left their lucrative corporate jobs and met up in Jaipur, Rajasthan for hands-on research for their take on social commerce.

Four months later the two along with three other friends started DealShare, a shopping platform where one can get discounts on group-buying of groceries. The platform is active in 10 cities in Rajasthan and Gujarat like Kota, Ajmer and Surat and has raised $11 Mn in a year from investors including Falcon Edge Capital, Omidyar and Matrix Partners.

“The first validation for our idea came was that people are ready to share massively and thanks to Reliance Jio and WhatsApp, this is now possible in India,” Medda told us, explaining that the entire social commerce business model depends on people being comfortable with social media interactions and sharing can be incentivised.

DealShare is currently serving about 15K orders daily and claims to have a base of 3 Lakh customers. The biggest player in the sector, Meesho has a presence in 1000+ cities and towns across India and is backed by marquee investors like Facebook, Sequoia and SAIF Partners.

The reasons behind social commerce’s new found prominence is both economic and social. The first and foremost being that it is simply cheaper than classical ecommerce.

The Hidden Costs Of Ecommerce

“One of the most appealing aspects for investors in social commerce is the low cost of customer acquisition. Most ecommerce startups are crippled by this Customer Acquisition Cost (CAC) given the extremely competitive market,” market analyst EY said in a report titled “E-commerce and Consumer Internet Sector – India Trendbook 2019.”

In the last decade, internet companies hard-pressed to quantify massive marketing budgets, made customer acquisition costs the metric to judge a company’s health.

“Customers in the US and EU come back to a particular vendor due to their good service and product, whereas Indian customers come back to look for more discounts and deals,” believes Harsh Shah, cofounder of online-to-offline fashion etailer Fynd.

This means that classical ecommerce platforms like Amazon and Flipkart, and even consumers services such as BigBasket, Grofers, Zomato and Swiggy have to keep giving discounts through heavily advertised sales to retain their customers. Industry watchers say that CAC for any major ecommerce marketplace in India is around $8 to $10 per customer. Multiple social commerce company executives said that in their business this cost is one-tenth that of classical ecommerce.

“We do not directly advertise the products. Our advertising budget is spent mostly on acquiring resellers. These are ads which ask if you want to earn money working from home and leveraging your friend circle. Since this is a strong incentive to find out more, we see a healthier response to these ads,” Dr Sonal Verma, founder of GlowRoad told Inc42.

Major ecommerce companies also tend to focus their attention on the increasingly wealthy consumers in India’s big cities, appealing to them with international brands and products that were earlier not available in brick and mortar shops. These kinds of products are much less likely to appeal to ordinary workers in third- and fourth-tier cities, who find such shopping websites too expensive.

This is also the demographic which has only recently come online, and so depend on apps like WhatsApp as a source of information and are yet to get fully comfortable with online payments.

In May, a Google report, Year in Search: Insights for Brands Report, said over 70% of all smartphones-related searches come from small towns.

For the same reason, smaller merchants and manufacturers are also flocking to social commerce platforms to increase exposure. Marketplaces like Amazon and Flipkart focus on recognisable brands and electronics, so India’s small businesses are left to look elsewhere for an ecommerce partner.

“Amazon and Flipkart have a high entry barrier in terms quality of display photographs and platform fees. Sometimes small retailers like local apparel makers based, plastics and utensil makers and artisans are not tech-savvy enough to work with these restrictions so they prefer listing on our platform,” Dr Verma added.

Investor interest has also been massively stoked due to the recent success of China’s rising ecommerce star Pinduoduo. Despite being less than three years old, Pinduoduo already has more than 300 Mn users, and its annual gross merchandise volume reached $14.7 Bn in just 2 years, a feat which took Alibaba’s marketplace Taobao 5 years, according to TechCrunch reports. The company went public on the New York Stock Exchange in 2018 at a valuation of close to $24 Bn.

Why India Is A Social Commerce Hotspot

A big socio-economic driver according to investors is that social commerce is only possible in pyramidal societies where there are income disparities.

In developed markets like the US, where economic classes are more rhombus like than pyramid, the principles of social commerce will not work, investors say — a rhombus formation indicates a larger middle-income group, unlike the bottom-heavy pyramid.

So what are the principles? Firstly, there should be a section in the society which has the desire to save money because they are already on a thin budget. Secondly, there needs to be a desire to earn extra income or money in this section of the population. Lastly, they need to be climbing up the socio-economic ladder and want access to a larger variety of items.

“Finding something which gives you earnings in your spare time will be highly lucrative in our country” – Anup Jain, investor, Orios VP

Moreover, Jain said that as users in social commerce become a channel instead of the retail store or sellers, small-town customers don’t have the same shyness about asking questions about the products or pricing. Here, the resellers are driven by a willingness to earn extra money.

“There is a very low entry barrier here. You don’t have to invest in a storefront, you don’t have to keep any people, you are basically utilising your phone which has very cheap data plan. So all the ingredients of social commerce have basically come alive in the country at this point in time,” a VC investor in the social commerce sector told Inc42.

Besides the increased penetration for smartphones, social commerce sites also incentivise selling by not demanding any deposits or GST registration and it doesn’t even require as much time or money to begin selling

But are the lower costs and India’s income structure the only reasons behind the gung-ho attitude towards social commerce startups? Perhaps not, opined some investors and industry watchers, who added that social commerce has tapped into a deeper homegrown cultural phenomenon.

The New Bazaars Of India 

All across India, the institution of hafta bazaars (weekly markets) has existed for well over millennia. These quasi-permanent markets come up on a fixed day of the week on the main street of a village or town and here one can find merchandise like fresh vegetables, poultry, cooking vessels, export-surplus clothing and hand-me-downs in good condition at extremely cheap rates.

This old way of shopping is something of an event where families and groups of women shop together to get better bargains, with kids in tow, hankering after the locally-made toys. For lower and middle-class India, these weekly bazaars have long been a community event meant as much for replenishing household supplies as they are a chance to meet and catch up with friends. And social commerce taps into this very need in the best way possible in a virtual environment.

According to Orios Venture Partners’ Anup Jain, these bazaars where people buy from big piles of clothes and utensils, are now transforming into social commerce sites. While a bazaar may be inconvenient due to crowds and may not always deliver a bargain, social commerce lets users browse leisurely and still net a bargain. It’s attracting the newer generation of shoppers, he added.

Sajith Pai, director of one of India’s oldest venture capital firms, Blume Ventures, said in a recent interview to Livemint: “While there are multiple reasons why social ecommerce is attractive, it all boils down to one key factor, which is to do with getting non-traditional users to transact in a manner that is crafted for them.”

Before ecommerce made shopping a solitary pursuit, it used to be a very social and public experience. Groups of teenagers fighting alongside families for the best bargains on Chinese electric mosquito bats, Tshirts with prints like “Adibas” and “Nice” and hawkers yodelling out their wares in singsong voices. Alongside these shops, street food joints offer a promise of quick and tasty pitstop, while all around material hopes and aspirations would be expressed and sometimes sadly dashed when bargain negotiations breakdown.

Shopping in bazaars may not give you the best products or a seamless experience like ecommerce does. But it does give shoppers a sense of community and emotion which is hard to come by in the cold digital context. Social commerce brings this warmth and sense of community to the digital world and that perhaps is its strongest selling point.

Graphics by Naga Jayadeep Akula

Author

Responses
https://inc42.com/features/bad-service-and-false-claims-whos-to-blame-when-zomato-swiggy-deliveries-go-wrong/
Loading Next…

Upcoming Events